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MEPs seek tougher rules for rating firms

The European Parliament wants tougher European Union legislation to regulate credit-rating agencies and to increase competition in the sector.

MEPs have started discussing a November 2011 European Commission proposal to clamp down on the activities of ratings agencies, which have been blamed by some for exacerbating the financial crisis.

Three rating agencies, Moody’s, Standard and Poor’s, and Fitch, all based in the United States, have a market share of 90%, and European policymakers are determined to reduce both their influence and credit issuers’ reliance upon them.

Report on competition

A Parliament report says that to enhance competition, “a threshold should be established beyond which credit-rating agencies would be prohibited from increasing their coverage of solicited ratings”.

The report, drawn up by Leonardo Domenici, an Italian centre-left MEP, was presented to the Parliament’s economic and monetary affairs committee yesterday (29 February). It backs the Commission’s plan for a “rotation” of rating agencies by issuers every three years – something that many industry insiders have criticised as “unworkable”.

Domenici, speaking in the Parliament yesterday, told MEPs that he wanted the EU to go further to reduce the reliance on the ‘big three’ firms by asking the Commission to “identify an independent body” that could conduct ratings of EU member states.

MEPs will debate the report before a vote, expected on 21 May. They will then have to agree with member states on the final shape of the law.